The Labor Supply Response in Macroeconomic Models: Working Paper 2008-07

Juan Contreras and Sven H. Sinclair

No 20141, Working Papers from Congressional Budget Office

Abstract: We evaluate the labor supply response in a stochastic overlapping generations model with incomplete markets and a non separable utility function in labor and consumption. Using a simulated panel from the model, we calculate the labor supply response to anticipated changes in wages (holding the marginal utility of wealth constant-that is, the Frisch elasticity) and to unanticipated change in wages (which describes the effect of uncertainty in labor supply responses). The model’s Frisch elasticity estimate is 0.33, which is slightly higher than the empirical estimates in the

Date: 2008-09-17
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